Korean companies gear up investments in Indonesia

Korean companies gear up investments in Indonesia

By Hendarsyah Tarmizi

SEOUL (JP): Four major South Korean companies are gearing up
to take advantage of low labor costs and the growing domestic
market in Indonesia by furthering their investments in the
country.

The widely diversified Hyundai Group, which last year opened a
industrial estate in Bekasi, West Java, will establish a car
assembling plant next year.

Three companies -- Miwon Co Ltd, Korea Development Co. Ltd
(Kodeco) and Sunkyong Industries -- have also made firm
commitments to boost their Indonesian operations. Miwon will
establish two new factories to produce animal feed and L-lysine,
an additive substance for animal food. Kodeco will further expand
operations into cement production, while Sunkyong, the largest
textile producer in Korea, will double the production capacity of
its polyester plant.

Hyundai Motors Company (HMC), the automotive unit of the
Hyundai Group, will operate its Indonesian plant with its local
partner.

HMC, South Korea's largest car producer, will be the second
Korean automotive company to enter Indonesia after Kia Motor,
which last year formed a joint venture with Hutomo Mandala Putra,
the youngest son of President Soeharto. Indauda Putra Nasional,
Kia's Indonesian joint venture, expects to start selling its cars
next year.

"We have to form an assembling plant in Indonesia to enable us
to compete with other car producers," a HMC spokesperson told The
Jakarta Post at the company's plant in Ulsan.

She believed that Hyundai, known for its high efficiency, will
be able to compete with Japanese and European car makers in
Indonesia's growing automotive market.

Besides taking advantage of low labor costs, the establishment
of the assembling plant will enable HMC to bypass Indonesia's
high import tariffs imposed on completely built-up (assembled)
cars.

She said HMC, which produces over 100,000 passenger cars per
month, has yet to decide the production capacity of the planned
Indonesian factory.

HMC, which employs around 41,000 workers, exported around
350,000 passenger and commercial vehicles last year to the United
States, Canada, Europe and Asian countries.

Seasoning

Indonesia's growing domestic market and low labor costs have
also lured other Korean companies to boost their direct
investments. Miwon, one of the world's largest chemical seasoning
producer, plans to set up two new factories as part of the
company's expansion program in Indonesia.

Miwon, which at present operates three food seasoning
factories, two in Surabaya, East Java, and another in Lampung, in
the southern part of Sumatra, will establish two other companies
to produce animal feed and L-lysine, an additive for animal food,
near its industrial complex in Surabaya.

Executives of the company said that Miwon's presence in
Indonesia is not only to take advantage of the country's cheap
labor.

Lim Chong-Boo, director of Miwon's Strategic Management
Division, said that Indonesia is not only the company's
production base but also the headquarters for its operations in
Southeast Asia.

"Indonesia is the country from where we supervise our whole
operation in Southeast Asia," Lim told the Post, adding that
staff being assigned to factories in other Southeast Asian
countries such as Myanmar and Vietnam are mostly trained in
Indonesia.

He acknowledged that low labor costs and the high availability
of sugar cane, one of the materials in the production of
monosodium glutamate, have enabled the company to compete on
international markets.

Miwon sells 50 percent of its seasoning products on the
Indonesian market.

Kwon Tae-Sun, director of the technical division, said the
company's Indonesian subsidiary plans to sell a portion of its
shares to the public to raise funds for its expansion program.

He said that the initial public offering (IPO) plan, which is
now under preparation, will receive a good response from the
public, given the company's prospects.

"Indonesia, with its large population, is a very promising
market and that's why we are very upbeat about our future," Kwon
said.

Cement

Kodeco, considered the pioneer of Korean investors in
Indonesia and known for its long and lasting presence, plans to
establish a cement plant in South Kalimantan in cooperation with
Indocement, Indonesia's largest cement producer, and Marubeni of
Japan.

Choi Jai-Wood, executive vice president of the company, told
the Post that his company and its two partners will soon
establish a joint venture, which will invest around US$400
million to establish the cement factory.

"Kodeco and Indocement will become majority shareholders in
the planned joint venture, while the Japanese partner, which will
help find financial sources for the project, is likely to have a
five-percent stake," he said.

He said that the cement to be produced from the planned
factory would be marketed both at home and overseas

Kodeco entered Indonesia for the first time in 1967 soon after
it received a license from the government to produce timber in
South Kalimantan.

Choi said that his company, which also operates an oil and gas
field in East Java, recently received another forest concession
contract in Irian Jaya.

Sunkyong, the largest integrated textile producer in Korea,
also plans to double the production capacity of its polyester
plant in Tangerang, West Java.

The Indonesian polyester plant, which is jointly owned by
Sunkyong and Batik Keris, a major batik producer in Indonesia,
will invest around $75 million for the expansion.

"It is the second stage of the Indonesian plant's expansion
program," Kim Se-Ki, managing director of Sunkyong's plant in
Suwon, told the Post.

The new expansion project, which will commence before the end
of this year, is expected to double the company's polyester
production capacity to 180 tons per day.

South Korea is the sixth largest foreign investor in
Indonesia, with total commitments of around $3.6 billion for non-
oil and non-financial businesses.

Growing labor costs in Korea have forced its companies to
relocate operations to other Asian countries to enable them to
remain competitive on the world markets.